EUR/JPY retreats from YTD high amid softer Eurozone CPI, cautious BoJ

• EUR/JPY weakens for a second day, slipping below recent peaks amid cooling Eurozone inflation.
• Eurozone headline CPI confirmed at 1.9% in May, falling below ECB’s target for the first time since September 2024.
• Japan’s May trade data reveals a 1.7% drop in exports and 7.7% fall in imports, highlighting external challenges.

The Euro (EUR) extends its decline against the Japanese Yen (JPY) for the second consecutive day on Wednesday, retreating further after briefly touching a year-to-date peak of 167.62 on Tuesday.

EUR/JPY is navigating a choppy market, trading around 166.43 in the American trading session, hovering below the previous day’s low. The pair is down nearly 0.20% on the day as traders weigh soft Eurozone inflation and cautious central bank signals.

Fresh Eurozone data continues to highlight a cooling inflation trend alongside pockets of resilience in the labor market and services activity. Headline inflation slipped below the European Central Bank’s (ECB) 2% target in May, giving policymakers room to ease borrowing costs further after their recent 25 basis point rate cut.

The Eurozone Harmonized Index of Consumer Prices was confirmed at 1.9% YoY in May 2025, slipping below the European Central Bank’s (ECB) 2% target for the first time since September 2024, signaling easing price pressures in the bloc. Meanwhile, the annual core inflation rate, which strips out volatile components such as energy, food, alcohol, and tobacco, moderated to 2.3% in May.

With inflation showing clear signs of cooling, investors increasingly expect the European Central Bank (ECB) to hold rates steady at its upcoming July meeting. Several ECB policymakers have signalled a preference for patience, urging a wait-and-see approach as economic risks persist. Governing Council member Robert Holzmann stated that the ECB should refrain from cutting rates further until at least September, while Executive Board member Isabel Schnabel cautioned that “new shocks” could still materialize despite the disinflation trend, reinforcing the case for a careful, data-dependent policy stance in the months ahead.

Turning to Japan, the Bank of Japan left its key rate unchanged at 0.5% this week, reiterating that any future moves will depend on how global risks and domestic inflation unfold. Trade figures released on Wednesday revealed a challenging backdrop, with exports falling 1.7% YoY, driven by weaker car shipments to the United States, while imports dropped 7.7% amid subdued domestic demand and elevated energy prices. The data underscores the BOJ’s cautious path forward as it balances inflation control with external headwinds.